Chancellor of the Exchequer, John Healey, delivered the autumn Budget today, the first of the Andy Burnham government, describing the announcement as: “Breathing space for now, fresh hope for the future.”
Much of the Chancellor’s talk in the build up to the announcement was around the need to invest in AI in order to bolster the country’s security, with a promise of hundreds of millions of pounds to develop a “distinctively British” approach to AI that would capitalise on the benefits of the frontier technology.
While playing a vital role in manufacturing, AI was perhaps not quite top of the priority list for manufacturers, however. With electricity costs currently crippling the competitiveness of UK industry, the need to reduce wholesale energy costs is fundamental if UK manufacturing is survive and thrive.
While recent government initiatives such as the British Industrial Competitiveness Scheme (BICS) have sought to reduce electricity costs for eligible industrial businesses and encourage capital investment, manufacturers still need clarity; not only on how existing support will be delivered, but how the government plan to reduce those wholesale electricity costs, which for many businesses, are the elephant in the room in terms of the government’s strategy to ease the burden on UK industry.
Manufacturers have been crying out for action on the UK’s spiralling energy costs, and while the recently launched BICS scheme offers some relief, many manufacturers feel that this latest scheme is a mere drop in the ocean.
Commenting on today’s Budget Make UK Chief Executive Stephen Phipson CBE, stated that the Budget has failed to address the biggest issue for UK manufacturers, at a time when the government’s overall commitment to reindustrialisation has been put to the test. He commented: “This Budget has failed to address any of the fundamental costs holding back investment and growth in manufacturing.”
Steel is one sector struggling to compete under such conditions and UK Steel has also expressed disappointment that today’s Budget failed to address the persistently high electricity costs facing British steelmakers, despite the industry putting forward a practical, costed solution that could transform its competitiveness for around £50, a year.
UK Steel’s latest electricity price report reveals that British steelmakers face electricity costs 49% higher than competitors in France, imposing an additional £66m on the industry this year alone. The industry has proposed a wholesale electricity price rebalancing mechanism, independently modelled by Baringa, which would bring UK industrial electricity prices closer to those faced by European competitors at an estimated net cost of around £50m annually between 2026 and 2030.
See comments from the company’s Director General, Peter Brennan below – click on name and title.
Key announcements for UK industry
- Lower industrial electricity costs: The proposed British Industrial Competitiveness Scheme (BICS) will reduce electricity bills by 25% for 10,000 firms, with implementation planned for April and backdated payments for eligible energy costs incurred during the current year.
Industry significance: This will potentially improve the competitiveness of electricity-intensive manufacturers, including businesses competing against European and international producers. The benefit will depend on which firms qualify and how the reduction is calculated.
- More favourable capital investment tax relief: The main first-year allowance for eligible new investment is to increase from 40% to 50%, while full expensing for eligible assets is maintained.
Industry significance: This will aim to improve the tax treatment of qualifying investment in machinery, production equipment and other capital assets. This could encourage manufacturers to modernise factories, automate processes and improve productivity.
- Additional funding for business investment: A further £20.4bn for the National Wealth Fund and British Business Bank is announced over the coming years, with the statement associating this investment with support for 140,000 jobs.
Industry significance: This could improve access to finance for manufacturers, technology businesses and scale-ups, particularly where commercial lenders or private investors are reluctant to fund capital-intensive projects.
- Defence and strategic manufacturing: Up to £5bn of investment and lending over four years will target defence, dual-use technology and sovereign capability. The Chancellor also confirmed a £2.5bn Rolls-Royce turbine-engine investment and £1bn-plus of announced life sciences investment.
Industry significance: This will create opportunities across aerospace, precision engineering, electronics, materials, component manufacturing, pharmaceuticals and defence supply chains.
- Advanced technology and innovation: The statement includes additional funding for AI safety and security, a sovereign AI initiative, support for semiconductor design in Scotland, and measures to accelerate commercialisation of innovative technologies.
Industry significance: The aim will be to support the potential development of UK capabilities in semiconductors, industrial AI, automation, cyber security and other technologies that underpin modern manufacturing.
What the Chancellor said…
On energy
“Businesses face challenges from rising energy costs due directly to the conflict in the Middle East. In the face of that, what matters is how we respond as a government. And my choice in the Budget today is to give families and businesses some breathing space now, and to begin the radical reform of energy to reduce bills in the future.
“Last week, the Energy Secretary approved the Jackdaw gas field, boosting our energy security. This will protect hundreds of jobs and add an estimated £2.9bn to the UK economy. This is a pragmatic, common sense decision, and alongside that, I launched a new Energy Wealth Fund for the UK.
“Today, I’m setting a new course on energy to get UK energy costs down in line with Europe. From this point, our priority is first and foremost, cheaper energy, with clean power key to achieving this. This is possible because of the progress we’ve made towards clean power over the last two years, and this government remains unshakably committed to net zero by 2050.”
On clean power generation
“This government will only buy and build new projects when they lower bills and when they can connect to the grid. We will further break the grip of international gas prices on our bills by moving more of our old renewables onto fixed-price contracts. And we will build cheaper, faster grid connections through GB Grid and reform the complex web of institutions that govern the system.
“This is how we deliver the radical change Britain needs on energy. It won’t happen overnight, and so I’m taking immediate action to give families and businesses breathing space in the here and now.
“Our new British Industrial Competitiveness scheme will take 25% off electricity bills for 10,000 firms at the heart of British industry. It will go live in April, and I confirm that we’ll make backdated payments for energy costs this year too.”
On innovation and jobs
“The only way we will keep Britain’s families and finances secure for the long-term is an economy that is growing strongly, and our country is one of the most innovative in the world. We have top-ranking universities, vibrant start-ups and deep capital markets.
“Today, I can announce over a £1bn of new life sciences investment, backed by almost £70m pounds of government funding and support for over 1,000 jobs. And I can announce that Rolls-Royce will develop their next generation of turbine engine technology here in the UK – a £2.5bn investment supporting 1,000s of jobs across the Midlands, Bristol and the UK.
“I want to build on our strengths to unleash the innovation power of Britain, to drive competition and raise profits in British business, drawing a line on the costs holding business back with stronger public control – proudly backing Britain’s entrepreneurs to succeed, and unlocking the potential of every part of this country.”
On investment
“The biggest barrier to fast-growth firms here in Britain is investment here in Britain. In today’s Budget, I’m boosting investment through our public financial institutions; a further £20.4bn for the National Wealth Fund and the British Business Bank over the coming years, supporting 140,000 jobs. And I’ll work with pension providers, with asset managers and with the wider industry to accelerate more private investment into Britain’s innovative, fast-growth firms.
“We will prevent regulation from holding back investment by removing regulation and tariffs worth £800m to business.
“And we will legislate for a regulatory carve-out so that innovative products like drones and medicines can be safely tested and rapidly scaled. And I’m re-establishing the Better Regulation Executive to cut outdated regulations and admin burdens on businesses and workers.
“I’m determined that we use public procurement to back British businesses, to buy British goods and promote British exports. I’m expanding challenge-led procurement, so government can be the first customer for innovative firms, and I’m developing a new definition of UK supplier to identify the companies creating genuine wealth, genuine investment and jobs here in Britain.”
On AI and data
“Nowhere is the necessary role for the state clearer than in artificial intelligence; to forge a British way to seize opportunities and guard against the risks that is based on security.
“We are already world leaders in AI safety and security, which today’s Budget backs with an extra half a billion pounds. And it is based on sovereignty, with our first of its kind sovereign AI unit protecting UK interests by channelling government investment into strategic British AI firms, backed today with another £140bn.
“And to ensure our most sensitive data stays under British control. I’m setting out a new deal for data centres in the UK.
“I’m launching a new British Data Centre Covenant with strict tests that data centres must meet to invest in local communities and create local jobs. In return, critical data centres will get the grid connections they need, and where necessary, be allowed to build on-site generation while they wait.”
On enterprise
“Britain does not lack great entrepreneurs. But too often, we invent technologies the world wants here in the UK, and then see the jobs and the profits go somewhere else.
“High-growth firms make up less than one per cent of smaller, medium-sized businesses, and they generate more than half the output. From the start-ups of today, to the scale-ups of tomorrow, to the billion-pound companies of the 2030s; I want to see them succeed and stay in Britain.
“So, for those for those just starting out, I’m tripling the trading allowance – the amount you can earn from a new venture tax-free, £1,000 to £3,000.
“I’m launching a new Young Entrepreneurs Allowance, which will cover a year of living costs for young founders while they turn their ideas into businesses, and as recommended by the Women in Tech Task Force, I’m also announcing a new scale-up programme to support female founders, and the British Business Bank will double its commitments to women-led businesses and funds to £200m.
“We need to get the best talent into our fast-growth firms, and so I’m reforming skilled worker visas and non-compete clauses in contracts; so that people who help build one successful company can move easily onto the next.”
On defence
“In this new era of threat, the demands on our UK defence are rising. Keeping people safe by equipping our armed forces is the first duty of any government.
“I’m proud to be part of a Labour government that has made the biggest increase in defence spending since the end of the Cold War. This year, our defence budget is £14bn higher than it was in the Conservatives’ last year of government.
“And at the spending review next year, I confirm that I will set out the details of how we will meet our NATO commitment to spend 3.5% of GDP on defence by 2035, with a target date for 3% in 2030.
“Today, I’m getting work underway to get there in a fiscally sustainable way. That will include looking hard at public spending to fund the defence investment plan, but I’m also determined to use more innovative financing alongside the private sector and our international allies.
“First, I’m launching a new Innovative Defence Finance Taskforce to lead this work ahead of the spending review. Second, I am now confirming that we will commence treaty negotiations on the multilateral defence mechanism with Finland, Poland, and the Netherlands to boost defence investment and joint procurement across NATO allies.
“Third, we will expand our defence industrial base by getting the maximum amount of private investment into defence, including through public-private partnerships. And fourth, as an immediate step, the National Wealth Fund and the British Business Bank will launch a new focus on defence, dual-use technology and sovereign capability, deploying up to £5bn of investment and lending over the next four years.
“I will ensure this record defence investment works twice: once for our national security, and once for British jobs and British business.”
Read industry reaction to today’s Budget below
“Today’s Budget is a missed opportunity for British steelmaking. We have presented the government with a clear, independently costed solution to one of the biggest barriers facing our industry. For around £50m a year, ministers could take a major step towards closing the electricity price gap with our European competitors. Yet once again, British steelmakers have been left waiting.
“The consequences of inaction are substantial. Our industry is already paying tens of millions of pounds more for electricity than competitors in France, money that could otherwise be invested in new equipment, skilled jobs and cleaner steel production.
“With wholesale energy prices rising again, the need for action is becoming more urgent, not less. British steelmakers cannot continue competing with one hand tied behind their backs.
“The government cannot deliver reindustrialisation on uncompetitive electricity prices. If ministers are serious about growing British manufacturing, attracting investment and decarbonising steel production, they must address this fundamental disadvantage.”
“We said this Budget was the first real test of the government’s pledge to reindustrialise Britain. Today they failed to address the one issue that would enable this – high industrial energy costs.
“Our industrial electricity costs are the highest in the world. As I told the Chancellor last week, this is having a ruinous effect on investment and requires urgent action. It is hugely disappointing that he didn’t listen to a sector that supports 2.6m jobs and accounts for 42% of UK exports.
“Likewise, while we welcome the slowing down of increases in the minimum wage, in general employing people remains more expensive and riskier thanks to the Employment Rights Act and higher employer NICs.
“This Budget has failed to address any of the fundamental costs holding back investment and growth in manufacturing.
“We will continue to push the government to make reindustrialisation an economic reality rather than an empty political slogan.”
“Removing the VAT charge on medicines that companies provide free of charge is a significant win for patients, lifting a barrier to access, protecting continuity of care and supporting the clinical research that brings new treatments to the UK.
“We support this measure, which follows sustained work by patient groups, the ABPI and our members to inform this change. We will keep working together to ensure the relief is simple to use and covers the full range of programmes that matters to patients.
“Medicines supplied free of charge can provide a vital route to treatment for patients with serious conditions. Companies supply them through early access and compassionate-use programmes, including where patients have limited treatment options, and to allow people who have benefited from a medicine during a clinical trial to continue receiving it afterwards. These programmes can also bridge the period before a medicine becomes routinely available through the NHS.
“Until now, companies could face a VAT bill on medicines they provided without receiving any payment. That additional cost has put pressure on programmes intended to help patients, creating a tax barrier to companies supplying medicines free of charge.”
“Today’s commitment to use public procurement more strategically is a major opportunity for British manufacturers. In recent years, we’ve lost more than £8m of work to overseas competitors on UK projects, meaning investment and skilled jobs left the country instead of supporting local economies.
“Using procurement to back businesses that invest in British jobs, supply chains and innovation will give manufacturers the confidence to grow, create skilled employment and bring new technologies to market.
“The Chancellor is right to recognise that public spending should deliver more than the lowest upfront cost. It should strengthen industrial capability, support energy security and ensure more of the economic benefits of public investment are retained here in the UK.
“If Britain is serious about growth and reindustrialisation, backing British manufacturers through procurement is one of the quickest ways to turn public spending into stronger supply chains, private investment and sustainable economic growth.”
“We welcome measures in the Budget to support business investment and industrial competitiveness, including improved access to finance and investment in key sectors such as aerospace and defence, alongside measures to reduce the cost of energy for the engineering sector.
“These are important steps towards strengthening the UK’s industrial base and supporting growth.
“The British Industrial Competitiveness Scheme, announced earlier this year, will provide welcome support for more than 10,000 energy-intensive businesses from 2027. But with growing energy costs piling ever more pressure on industry, we need this to go further and for support to be extended to a wider range of companies, or we risk losing investment and high value jobs to countries offering more competitive conditions.
“Increased investment in AI across the UK will be welcomed by industry will help create the conditions for growth in communities across the country.
“Engineering is central to growth across the UK, with 6.4 million people in highly skilled roles driving productivity and innovation. The Government must now match this contribution with the ambition and investment needed to unlock engineering’s full potential.”
“This Budget offers nothing to ease the pressures food and drink manufacturers are under. Instead, one of the Chancellor’s flagship announcements, removing tariffs from some food and drink products, will have no meaningful impact on consumer prices. But it will undermine British factories and their workers, grappling with much higher costs, producing the same products.
“Food and drink manufacturing should be central to the government’s growth and reindustrialisation agenda. But time and again, we are treated as an afterthought. The Treasury in particular has persistently failed to recognise the importance of food and drink manufacturing to jobs and prosperity the length and breadth of the UK.
“Nor does this Budget attempt to address the acute pressures our sector is currently facing. Very high energy costs combined with overly complex regulation is turning investment away from our sector and to competitors overseas. This is eroding confidence across the entire food system.
“The government has chosen not to extend energy support, available to other manufacturing sectors, to food and drink businesses, which would have helped to strengthen our sector in the face of overwhelming pressures. Our energy costs are double the European average, and this is hitting investment, jobs and growth. If government is serious about tackling the cost of living, there is plenty they can do. But today they have made a clear choice to do nothing.”
“So many of the pressing challenges that John Healey’s first UK Budget has highlighted, have an engineering dimension.
“We welcome the new measures to support the UK’s deep tech businesses to stay and scale in the UK. As the Academy’s forthcoming State of Deep Tech report highlights, the UK is a global leader, but persistent growth capital gaps risk the loss of value created by our most innovative companies. The real test will be whether this capital reaches high-potential engineering and technology companies at the pace and scale required to support their growth in the UK.
“Expansion of the Sovereign AI fund to support physical and industrial AI presents a major opportunity for UK engineering to help improve productivity and capability across the economy through safe and effective AI adoption. Regulatory capability and standards are a UK strength, so it is good to see investment in building on those foundations for AI.
“The new data centre covenant responds to many of the concerns that the Academy’s National Engineering Policy Centre has highlighted around the sustainable development of AI. The focus on environmental reporting, maintaining environmental standards and local benefit will help extend the positive impact of AI locally.
“It is critical to help households transition to electrified heating systems and to support technology adoption of solar and batteries to make the wider energy system cleaner, more secure and more resilient. We are pleased to see the retention of the Boiler Upgrade Scheme and applaud new plans to establish a Warm Homes Loan Scheme.
“The decision to reduce support for Carbon Capture and Storage (CCUS) and Hydrogen deployment however is disappointing. They are both vital components of a low carbon energy system and CCUS is currently the government’s key route to decarbonising gas-fired generation and hard-to-abate sectors.”
“The Budget offers some help for businesses, but it does not go far enough in addressing the fundamental challenges facing our sectors. Short-term relief is no substitute for the action needed to bring down the cost of doing business and unlock long-term investment and growth.
“Measures to boost the National Wealth Fund and the British Business Bank’s offer to defence and dual use firms will help in the short term, as will extra support for scale-ups and new businesses. The additional funding towards the next generation of gas turbines is also a noteworthy commitment.
“Confirmation of funding for the Defence Investment Plan and continued support for Ukraine are welcome. We also note the commitment to spend 3% of GDP on defence by 2030 on the way to meeting the UK’s NATO obligations. However, it is disappointing that industry is still waiting for the full and detailed plan it needs to invest with confidence.
“The stakes could not be higher for our economy, our industries and our national security. We cannot afford to miss this moment, and delaying action comes at a cost. The government needs to make the bigger decisions at next year’s Spending Review that will give industry the confidence to invest, grow and deliver.”
“It is welcome news that in today’s Budget the Chancellor set out how the government will pay for the £4.7bn gap in the funding of the Defence Investment Plan left to him by his predecessor and made clear commitments to back our domestic industrial base through defence spending. We have been consistently clear with the government that these commitments were needed, with a fully funded DIP providing clarity to businesses.
“It is also encouraging that the Chancellor announced a new commitment for the National Wealth Fund and British Business Bank to deploy up to £5bn over the next four years into defence, alongside confirming that the government will set out a plan to reach 3% of GDP on defence by 2030 and our NATO target of 3.5% by 2035 in the Spending Review. In the face of constantly increasing threats, it is important that the UK is finally starting on a path to fulfil our NATO commitments.
“But there is much more to do. Alongside tackling our sky-high industrial energy costs, we look forward to working with the government on how exactly it plans to reach 3% of GDP on defence by 2030 and 3.5% by 2035. UK industry needs to know that the commitment to defence is there long term to strengthen business confidence to invest.”
“The Chancellor was correct to recognise the significant pressures facing businesses. Our most recent Snapshot Survey revealed that 80% of engineering and manufacturing SMEs faced pressure to raise prices due to increasing labour and raw material costs.
“The number of SMEs in the sector under pressure to raise prices due to energy costs had also more than doubled since the previous survey. The Chancellor’s actions to reduce energy costs facing employers is therefore certainly a welcome step. However, greater emphasis must now be placed on reducing the wider costs SMEs face, so they are able to create more jobs and invest increasing amounts in training the next generation.
“Over the coming months, we look forward to greater clarity on the government’s commitment to tackling youth unemployment. Right across the UK, many young people are struggling to find pathways into work. Meanwhile, around two-thirds of engineering and manufacturing SMEs say they are not running at full capacity.
“If Alan Milburn’s final recommendations are to create more workplace opportunities for young people, government policy must also support SMEs to offer more workplace opportunities. Policymakers should explore targeted financial incentives to directly encourage greater employer investment in skills and training, offsetting those costs that currently hold employers back.”
“We’re disappointed the British Industrial Competitiveness Scheme (BICS) hasn’t been extended to include more businesses. Many manufacturers of electrical products will now continue to pay policy costs on their electricity bills that other manufacturers will be exempt from.
“The cost of manufacturing in the UK is weighing on our members, with long-term investments on a downward trend. We’d like to see policy costs on electrical product production removed for every manufacturer in the UK. Not only would that make for a simpler (and fairer) test than the current eligibility rules, but it would give firms more capital to invest and hire in line with the aims of the government’s Industrial Strategy.
“While we welcome the immediate financial support for those who need it and the commitment to reviewing the structure of electricity bills, the government needs to focus on technology deployment as a way to lower householders’ bills every year and reduce the need for direct financial assistance. This relies on more than just running costs. With a mixture of better recognition of technology benefits in policy, advice, financial incentives and proportionate product regulation timelines, we can build a mass market energy transition for buildings and transport. Industry is waiting for details on the Warm Homes Fund, Warm Homes Agency and successor to ECO, and not publishing these on Budget day was a missed opportunity.”
“Backing British industry through public procurement is absolutely the right decision. That support needs to be about recognising the value of established, key domestic supply chains as well as new technologies and innovation. After all Portland cement was invented in Yorkshire around 200 years ago, but Britain cannot build the future homes and infrastructure it needs without it.
“The reprioritisation of CCUS funding raises important questions and we’ll need to see more detail on the proposals to explore loans or equity investment and what they mean for projects that have been developed based on previous government support committed during this Parliament.
“The Climate Change Committee recognises that carbon capture is essential for cement to reach net zero. Weakening the support previously available would put that transition at risk and make it harder for Britain to build the infrastructure it needs within its carbon budgets.”
“It is good to see that a key component of the Chancellor’s first Budget has been creating “breathing space” for manufacturing businesses, with changes to tax, energy and fuel costs – as the cost of making is as important to our sector as the cost of living is to the general public.
“The announcement that the British Industrial Competitiveness Scheme will take 25% off electricity bills for 10,000 firms at the heart of British industry is welcome news – even more so as it will be backdated to cover energy costs this year. Many of our members are small and medium-sized businesses that find steep overhead costs especially challenging, so this will help to ease the pressure and restore some power back to business leaders across the country.
“Procurement is vital to all manufacturers, so the extension of the 5p fuel duty cut will also help to uplift British makers for whom fuel is a major ongoing running cost, both internally and within their wider supply chains.
“The British manufacturing sector plays a huge role in supporting good growth across the country, so it is welcome to see these measures put in place to encourage this good growth.”
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